How Walmart's Free Holiday Shipping Changes E-Commerce

Walmart's (WMT) latest ploy to lure customers -- free shipping on 60,000 items available online -- could be a case of Bentonville's behemoth realizing, "if you can't beat 'em, join 'em." However, Walmart's going one step further and hitting both large and small retailers where it hurts: in minimum orders. Walmart customers don't have to meet a minimum order amount to get the goods shipped free. Even though Walmart's initiative expires on December 20th, it's going to seriously change the e-commerce game.

The online retail ground has been quaking for a while. Zappos was one of the first e-tailers to use free shipping both ways, year-round as a means to coax customers into purchasing shoes they weren't necessarily in love with. "Try it on, if you don't like it for any reason, we'll take it back. No questions asked," became the mantra which led the company to $1 billion in sales in less than 10 years.

Since then, many retailers have jumped on the free shipping bandwagon including Zappos' parent Amazon (AMZN), which requires a minimum order of $25, or paying $79 for the privilege of free shipping any time. Gearing up for the holiday wrestling match, JCPenney (JCP) now offers free shipping year-round with a minimum purchase of $69. Target (TGT) has free shipping if you spend $50 or more on any of 800,000 items. Even L.L. Bean joined the fray, offering free shipping through Dec. 20 with no minimum.

The more businesses leap on this promotional bandwagon, the more customers will come to expect getting packages of all sizes with no extra shipping charge. And the more creative some smaller retailers will have to be to make their margins.

It's easy for Walmart. As a megalith merchant, it's got distribution centers all over the country that help cut down distances to ship. And let's not forget that the shipping companies themselves favor those retailers who literally move tons of merchandise. The NYT reports that air shipping prices for big retailers are about 70 percent less than for a small company.

To stay competitive, smaller online shops would do well to take a long, hard look at the possibility of adding their own paid subscription service in exchange for free shipping throughout the year a la Amazon Prime. Or consider banding together on GSI Commerce's Shop Runner service along with the likes of Toys R Us, (TRU), Borders (BGP) and Petsmart.

The latter could actually help a less well-known business boost sales and offset the cost of participating in the program. As part of a virtual mall, e-tailers can take back the advantage that foot traffic generates in a traditional commercial setting. Shoppers looking for pet food or sports equipment can easily click around and discover their wares. Sold.